| annual percentage rate | The interest rate in annual terms.
|
 |
|
|
| annuity | A level stream of equal dollar payments that lasts for a fixed time. An example of an annuity is the coupon part of a bond with level annual payments.
|
|
|
|
| annuity factor | The term used to calculate the present value of the stream of level payments for a fixed period.
|
|
|
|
| appropriate discount rate | The discount rate used in valuation that properly reflects risk.
|
|
|
|
| compounding | Process of reinvesting each interest payment to earn more interest. Compounding is based on the idea that interest itself becomes principal and therefore also earns interest in subsequent periods.
|
|
|
|
| compound interest | Interest that is earned both on the initial principal and on interest earned on the initial principal in previous periods. The interest earned in one period becomes in effect part of the principal in a following period.
|
|
|
|
| compound value | Value of a sum after investing it over one or more periods. Also called future value.
|
|
|
|
| continuous compounding | Interest compounded continuously, every instant, rather than at fixed intervals.
|
|
|
|
| discounting | Calculating the present value of a future amount. The process is the opposite of compounding.
|
|
|
|
| effective annual interest rate | The interest rate as if it were compounded once per time period rather than several times per period. future value*Value of a sum after investing it over one or more periods. Also called compound value.
|
|
|
|
| growing perpetuity | A constant stream of cash flows without end that is expected to rise indefinitely. For example, cash flows to the landlord of an apartment building might be expected to rise a certain percentage each year.
|
|
|
|
| net present value | The present value of future cash returns, discounted at the appropriate market interest rate, minus the present value of the cost of the investment.
|
|
|
|
| perpetuity | A constant stream of cash flows without end. A British consol is an example.
|
|
|
|
| present value | The value of a future cash stream discounted at the appropriate market interest rate.
|
|
|
|
| present value factor | Factor used to calculate an estimate of the present value of an amount to be received in a future period.
|
|
|
|
| simple interest | Interest calculated by considering only the original principal amount.
|
|
|
|
| stated annual interest rate | The interest rate expressed as a percentage per annum, by which interest payment is determined.
|